Rand v. Underwriters at Lloyd's

WATERMAN, C. J.: In these two cases, Adele Rand, a citizen of the State of New Mexico, sues the defendants, British insurers, on two policies of livestock mortality insurance indemnifying her against loss through death of her race horse, Tom F., Jr. The issues in the two cases are identical except for the amounts of insurance provided for in the two policies, and therefore the two suits were consolidated for trial and remain so upon appeal.

Mrs. Rand purchased Tom F., Jr., then a weanling, in January 1956, for the sum of $38,000. On November 2, 1956, a veterinarian, Arthur H. Davidson, examined the yearling colt at the training farm of one Ward in Kentucky and found him to be sound and normal in all respects. The defendants then issued the policies sued upon, covering the period from November 3, 1956 to November 3, 1957, in the aggregate amount of $38,000. Among the conditions of the policies was the following:

In January 1957, one W.W. Stephens, Mrs. Rand's trainer, noticed a "weakness" or "slight catch" in the colt's hindquarters. An X-ray taken January 29, 1957 indicated a fracture of the fibula of the left hind leg, a condition testified to as being "very common" in horses of Tom F., Jr.'s age. Soon the horse was walking normally again, but in early April, while at Belmont Park, New York, for racing, Stephens noticed a recurrence of the "catch," and the horse, now a two-year-old, was shipped from Belmont back to the Ward farm in Kentucky where he could get "a good long rest" and could be looked at by Dr. Davidson. Between April and July Dr. Davidson noted that Tom F., Jr. improved but then his condition "remained static." In late July Stephens was in Kentucky for yearling sales, and was told by Ward that the horse had improved to a point and "was kind of holding his own but wasn't improving as much as we would like for him to have." Stephens became concerned, because "we gave a lot of money for him."

In the final days of August the fatal illness of his father again took Stephens to Kentucky. He was then told by Dr. Davidson that Tom F., Jr. was getting worse all the time and that the insurance people should be notified. Stephens then telephoned Mrs. Rand or her husband at Saratoga, N.Y., informed them of the situation, and told them to notify the insurers. The Rands, on September 4, did so. On or about October 30 the defendants denied liability on their policies on the sole ground that Mrs. Rand had failed to comply with the notice conditions contained therein. On November 2, 1957 (the day before the policies were to expire) Dr. Davidson destroyed the horse for humane reasons.

At the close of plaintiff's case and again at the close of all the evidence, the defendants moved for directed verdicts. Decision thereon was reserved. The consolidated case was submitted to the jury, the defendants taking exceptions to a portion of the judge's charge. The jury returned verdicts for plaintiff, defendants renewed their motion for directed verdicts, and further moved to set the verdicts aside. All of defendants' motions were denied, judgments were entered on the verdicts, and the defendants appeal. Appellants claim that, as a matter of law, plaintiffs failed to "immediately give notice . . . by telephone or telegram" as required by the policies, and, therefore, that there was no issue of fact to go to the jury. Moreover, appellants argue that even if it were proper for the jury to determine whether the plaintiff under the circumstances "immediately gave notice" there was a portion of the court's charge to the jury, properly objected to by defendants, that was prejudicially erroneous. It is our view that the trial judge correctly submitted the question of whether the notice the plaintiffs gave complied with the notice provisions in the policies; but we agree with appellants that the charge was prejudicial to them. Therefore, we reverse the judgments below and remand the cases for a new trial.

This is a diversity suit and so the substantive rights and liabilities of the parties are governed by New York law. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); see Auten v. Auten, 308 N.Y. 155, 124 N.E. 99 (1954); Zogg v. Penn. Mutual Life Insurance Company. 276 F.2d 861 (2 Cir. 1960). The New York courts have construed the phrase "give immediate notice" when it has appeared in insurance policies setting forth requirements that a notice of a loss or of a changed condition must quickly be relayed to the insurer. We are required to follow that construction unless there is a justification for not doing so, and we do not discover any justifiable reason for departing from the New York precedents.

When interpreting "immediate notice" the New York courts have consistently applied a so-called rule of "reasonableness" by which to define the time when the insured must give the insurer a notice of a loss or of a changed condition (as an accident) if the contract of insurance is not to be made void for delayed notice. They have held that "immediate notice" means "notice within a reasonable time under all the circumstances." Greenwich Bank v. Hartford Fire Ins. Co., 250 N.Y. 116 (1928); Melcher v. Ocean Accident & Guarantee Corp., 226 N.Y. 51, 123 N.E. 81 (1919); Woolverton v. Fidelity & Casualty Co., 190 N.Y. 41 (1908); Solomon v. Continental Fire Ins. Co., 160 N.Y. 595 (1899); Matthews v. American Central Ins. Co., 154 N.Y. 449 (1897); Reina v. United States Casualty Co., 239 N.Y.S. 196 (1st Dept. 1930); Keegan v. Excess Ins. Co. of America, 116 N.Y.S. 2d 687 (Sup. Ct. 1952).

Therefore, at the threshold of our consideration of whether the motions for the directed verdict should have been granted we must decide if here "immediately give notice" means "give reasonably immediate notice under the circumstances." We are unwilling to depart from New York's "reasonableness" rule and are unwilling to adopt a stricter standard of interpretation for federal courts to apply when adjudicating upon claims arising from livestock policies. We realize that there are jurisdictions outside of New York that strictly interpret the notice provisions in livestock policies. See Hough v. Kaskaskia Live Stock Ins. Co., 230 Ill. App. 341 (1923); Green Bros. v. Northwestern Live Stock Ins. Co., 87 Iowa 358, 54 N.W. 349 (1893). However, New York apparently applies a "reasonableness" standard when interpreting all insurance notice clauses and, though the New York decisions are found in suits arising out of actions brought upon fire and accident indemnity policies, there is no reason why the same standard should not apply to livestock policies. In Zauderer v. Continental Cas. Co., 140 F.2d 211 (2 Cir. 1944), we applied New York's rule of reasonableness to an automobile liability policy, and in reaching that result we relied on New York cases involving both fire insurance and liability insurance undistinguishably.

The New York courts, likewise, have not applied one standard to one type of policy and another standard to a different type. In Solomon v. Continental Fire Ins. Co., 160 N.Y. 595 (1899), involving fire insurance, the Court of Appeals stated, "immediate notice is notice within a reasonable time." In Melcher v. Ocean Accident & Guarantee Corp., 226 N.Y. 51, 56, 123 N.E. 81 (1919), it stated that "it is not every trivial mishap or occurrence that the assured under such a policy of liability insurance must regard as an accident of which notice should be given immediately to the insurance company, even though it may prove afterwards to result in serious injury." In Reina v. United States Casualty Co., 239 N.Y.S. 196, 197 (1st Dept. 1930), the Appellate Division of the New York Supreme Court, First Department, declared that an "'Immediate notice,' under this clause, is notice within a reasonable time under all the circumstances." And in Deso v. London & Lancashire Indem. Co., 3 N.Y. 2d 127, 130, 143 N.E. 2d 889 (1957), the Court of Appeals said that "the Melcher case is authority for the proposition that ignorance of the fact that injury has resulted from an accident may excuse a delay in giving notice."

Similarly, a textbook writer finds no distinction justifying a different interpretation of the phrase in different types and kinds of policies. In his Handbook on the Law of Insurance (3d ed. 1951), Vance points out at p. 893: "Notice of loss is held to be 'immediate,' within the requirement of the standard policy, when it is given as soon after the fire as is reasonably possible under existing circumstances, in the exercise of due diligence." And at p. 1001, in the chapter on liability insurance, he states:

"The assured is usually required by the terms of the policy to give immediate notice or notice as soon as practicable to the liability insurer of any accident which may result in a claim under the policy. These and like expressions will be construed to mean notice within a reasonable time, and not necessarily notice immediately after the accident."*fn1

There are distinct practical advantages in applying the New York standard of "reasonableness" to the "immediate notice" phrase. Strict interpretation could result in permitting no leeway for the exercise of judgment in the light of common experience. The New York courts are committed to the doctrine that the "reasonableness" standard is just to insured and insurer, and we believe that the New York courts would interpret the ...

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